Today’s Targets Evaluate the effect time has on saved money.

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Presentation transcript:

Today’s Targets Evaluate the effect time has on saved money

What would you do? You get a job for a month (31 days). You are offered one of two pay rates: 1.) $ a day 2.) $0.01 on day one that will double everyday ($0.02 on day two, $0.04 on day three... ) –Which pay would you take? If you picked 1 you made $3,100 If you picked 2 you made almost 11 million on day 31 and a total of $21,474,836.47

Time Value of Money =

Why & How do we Save? Short Term Goals –Put money in ‘safe’ spot so will be there Long Term Goals –Make money work for you – Money making more money

First Things First What is the national saving rate? –3.6% for 2012 What is the difference between Saving and Investing? –Saving: Put money away, sits there –Investing: Put money to work for you, earning more money Why MUST we invest? –Money loses value (inflation)

Tips to Investing Dollar Cost Averaging –By investing same amount over time, lower your average price paid per share Worksheet Example To figure out how well you did = Rate of Return –Loss or gain / original investment

Why Now? (at 12%) Saver A spends his money partying for 8 years, then opens a retirement / tax – deferred account at age 26. Saver A invest $150 a month for 40 years. Contributions = $72,000 Saver B invests $150 a month for 8 years in a retirement / tax deferred account at age 18. Saver B saves nothing for the next 40 years. Contributions = $14,400 Who ends with more?

Saver B by $467,000

How Does This Work? Power of Compounding Interest –Money saved + interest earn more money Remember rule of 72 –Divide 72 by interest = how many years to double

Understand the math Page 39 –Compound interest is a mathematical explosion. You must start now. Complete Handout as a class Complete Handout as Homework

Remember =